Why growing at 6%pa is disastrous for India ?

My scientist father (and of late, my 10-year old daughter) keep on quizzing me on business and economics with the (dangerous) curiosity of laypersons, and many times the issues are out-of-box and hence uncomfortable. One of the points of discussion was “why should our GDP grow at 9% and not 6% or why not 4% ?” Is it a question of national pride and ego that if China is growing at 10% (and now 6-8%), we should be growing at similar rates only ? Or is there something more ?

The angle of “poverty alleviation because of rapid national GDP growth” has been under-rated in the minds of most (urban/rich) Indians. As brought out in multiple issues of the Economist and in other global economy journals, poverty in the world has been almost halved from 2.1bn to 1.1bn from 1990-2010. This has come about because of a combination of growth (trickle-down effect of businesses growing fast) and income re-distribution (subsidies or cash transfers for the poor). Between the two factors, growth has been found to be 75% responsible for the reduction of poverty and re-distribution for the other 25%.

Of these 1bn people who have come out of poverty, 680mn were in China. India, by some estimates got about 200mn people out of poverty – not a bad feat ! India’s GDP per capita has trebled from USD 400 to USD 1200 in the process. Of the 1.1bn people still in poverty, 390mn are in India, another 100 mn in China and rest largely in Africa.

Let me try in this piece to walk you through the progress of poverty alleviation in India. These are rough numbers taken from Wikipedia, Economist etc, cobbled together for easy understanding  :

Poor is defined as persons living by consuming under USD1.25 per day. At Rs 35 to a USD on purchasing power parity basis, this is Rs 44 per person per day. For a family of 5, this is Rs 220 per day or Rs 6,600 per month for the family. Most of our building watchmen and household help fall on the boundary of this definition. So, the real poor in India are in the 2 lac poor villages without electricity or water connection, large parts in tribal areas. This also gives a perspective behind the rise of Naxalism in such areas – poverty can bring out the worst of frustration and desperation.

In 1990, we had a national population of 850mn, of which 51% were poor, i.e., 434mn were poor. At 1.58% pa population growth, the poor would have grown from 434mn to 612mn in the 22 years till 2012. However, in 2012, we had a population of 1200mn, of which 32.7% were poor, i.e., 392mn. Hence, we took out 612mn less 392mn, i.e., 220mn people out of poverty !!!  What this means is that these 220mn people might possibly have used toilets for the first time or seen water coming from taps for the first time or a fan rotating in the ceiling or possibly more than 2 chapaatis in one meal !!

This is the power of growing GDP and redistribution of wealth (done through programs like MNREGA, subsidies to farmers on fertilisers, ration shops giving rice & kerosene to poor). This is why India has to continue growing at 8-9% pa. National pride is a very small reason. Growing affluence of middle-c lass, and more choices to consumers are slightly better reasons. But getting one poor person to taste life itself is the real reason for pushing high growth (along with redistribution programs).

If our GDP continues to grow at 8-9% pa, we are targeting to reach 20.3% poor by 2020. In 2020, our population will be 1.36 bn. The 392mn poor people in 2012 would have grown to 445mn, if we don’t help them. However, at 20.3%, we will have 276 poor people. So, we will take another 445mn-276mn = 169mn people out of poverty. If we grow at 6%pa till 2020, we will take out only 80-90 mn out of poverty !! This is the imperative of growing fast.

Till majority of Indians are taken out of the poverty trap, according to me, no one should think of anything else in our country. People need to sink in their individual differences and work towards this goal.

Rapid growth without equitable distribution is also a cause for concern because this finally results in social revolutions and Naxalism. Hence, thrust on equitable re-distribution of wealth is also needed through judicious programs.

Media needs to focus on these aspects of the country rather than on the colour of the towel in Sreesanth’s pocket or whether Srinivasan will step aside or step down or if Modi will be Chairman or Chief of Election body of BJP or whether Arnab screams more than Rahul Kanwal & Rajdeep combined !!

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